The Crisis: Basic Mechanisms and Appropriate Policies
It is much too early to give a definitive assessment of the crisis, not least because it is far from over. It is not too early however to look for the basic mechanisms that have taken us where we are today, and to think about the policies we need to implement, now and later. This is what I shall try to do in this lecture. Take it for what it is, a first pass in the midst of the action.3
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advanced countries Advanced Economies amplification mechanisms assess the value AVOID A REPEAT balance sheets bank runs borrow capital ratios central banks Citigroup complexity Contagion Across Assets counterparty risk credit booms cut credit dampen decrease in stock deep pocket investors default deleveraging depositors and investors derived securities domestic emerging countries emerging market countries Euro Area fight asset price Figure 8a financial crisis financial institutions financial system fire sale prices firms foreign heat index Iceland Increase in counterparty increased connectedness initial conditions initial subprime loss interbank large number lecture Lehman Brothers limited liquidity provision low interest rates macroeconomic major measures of systemic monetary policy mortgages were securitized number of asset number of countries opacity outflows from emerging output perimeter of regulation programs recapitalization relative safe assets sale of assets sell assets September 2008 shows the evolution stock prices subprime mortgages systemic risk tranched trigger trillion uncertainty underestimation of risk United United Kingdom